THE FACTORING REGULATION ACT, 2011 
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ARRANGEMENT OF SECTIONS 

Last updated:31-8-2021 
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CHAPTER I 

PRELIMINARY 

SECTIONS 

1.  Short title, extent and commencement. 
2.  Definitions. 

CHAPTER II 

REGISTRATION OF FACTORS 

3.  Registration of factors. 
4.  Provisions of non-banking financial companies apply to factor. 
5.  Requirement for registration as a factor not to apply to bank or Statutory corporation or 

Government company. 

6.  Powers of Reserve Bank to give directions and to collect information from factors. 

CHAPTER III 

ASSIGNMENT OF RECEIVABLES 

7.  Assignment of receivables. 
8.  Notice to debtor and discharge of obligation of such debtor. 
9.  Discharge of liability of debtor on payment to assignee. 
10.  Payment made by debtor to assignor to be held in trust for benefit of assignee in certain cases. 

RIGHTS AND OBLIGATIONS OF PARTIES TO CONTRACT FOR ASSIGMENT OF RECEIVABLES 

CHAPTER IV 

11.  Rights and obligations of parties to contract for assignment of receivables. 
12.  Liability of debtor. 
13.  Assignor to be trustee of assignee. 
14.  Liability of debtor in case of an assignor being mircro or small enterprises. 
15.  Principle of debtor protection. 
16.  Defences and right of set off of debtor. 
17.  Modification of original contract. 
18.  Breach of contract. 

CHAPTER V 

REGISTRATION OF ASSIGNMENTS 

19.  Registration of certain assignments of receivables transactions. 
20.  Public inspection. 

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CHAPTER VI 

OFFENCES AND PENALTIES 

SECTIONS 

21.  Penalties. 
22.  Penalties for non-compliance of direction of Reserve Bank. 
23.  Offences. 
24.  Cognizance of offences. 
25.  Offences by factors. 

CHAPTER VII 

MISCELLANEOUS 

26.  Provisions of this Act to override other laws. 
27.  Application of other laws not barred. 
28.  Limitation. 
29.  Confidentiality of information. 
30.  Power to exempt. 
31.  Provisions of this Act not to apply or affect in certain cases. 
31A. Power to make regulations. 
32.  Power of Central Government to make rules. 
33.  Laying of rules. 
34.  Power to remove difficulties. 
35.  Amendments to certain enactments. 

THE SCHEDULE. 

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THE FACTORING REGULATION ACT, 2011 

ACT NO. 12 OF 2012 

An  Act  to  provide  for  and  regulate  assignment  of  receivables  by  making  provision  for 
registration  there  for  and  rights  and  obligations  of  parties  to  contract  for  assignment  of 
receivables and for matters connected therewith or incidental thereto. 

BE it enacted by Parliament in the Sixty-second Year of the Republic of India as follows:— 

[22nd January, 2012.] 

CHAPTER I 

PRELIMINARY 

1.  Short  title,  extent  and  commencement.—(1)  This  Act  may  be  called  the  Factoring  Regulation 

Act, 2011. 

(2) It extends to the whole of India. 

(3)  It  shall  come  into  force  on  such  date1  as  the  Central  Government  may,  by  notification  in  the 

Official Gazette, appoint: 

Provided that different dates may be appointed for different provisions of this Act, and any reference 
in any such provision to the commencement of this Act shall be construed as a reference to the coming 
into force of that provision. 

2. Definitions.—In this Act, unless the context otherwise requires,—  

(a) “assignment” means 2[transfer by agreement to a factor of an undivided interest, in whole or 
in part, in the receivables of an assignor due from a debtor and includes such transfer where either the 
assignor or the debtor is situated or established outside India]. 

Explanation.—For  the  purposes  of  this  clause,  undivided  interest  of  any  assignor  in  any 
receivable  shall  not  include  creation  of  rights  in  receivables  as  security  for  loans  and  advances  or 
other obligations by a bank or a financial institution; 

(b) “assignee” means a factor in whose favour the receivable is transferred;  
(c) “assignor” means any person who is the owner of any receivable; 
(d) “bank” means, —  

(i) a banking company; 

(ii) a corresponding new bank; 

(iii) the State Bank of India; 

(iv) a subsidiary bank; 

(v) such other bank which the Central Government may by notification specify for the purposes 

of this Act on the recommendations of the Reserve Bank; or 

(vi) a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies 
Act, 2002 (39 of 2002) and licensed to undertake business of banking by the Reserve Bank under 
the provisions of the Banking Regulation Act, 1949 (10 of 1949); 

(e)  “banking  company”  shall  have  the  meaning  assigned  to  it  in  clause  (c)  of  section  5  of  the 

Banking Regulation Act, 1949 (10 of 1949); 

(f)  “business  enterprise”  means  any  enterprise  or  medium  enterprise,  micro  enterprise  or  small 
enterprise  as  defined  in  clauses  (e),  (g),  (h)  and  (m)  of  section  2  of  the  Micro,  Small  and  Medium 
Enterprises Development Act, 2006 (27 of 2006), respectively engaged in any business activity; 

1. 2nd April, 2012 (Ss. 19, 20, 21, 32), vide notification No. S.O. 711(E), dated 2nd April, 2012, see Gazette of India, 

Extraordinary, Part II, sec. 3 (ii). 
1st  February,  2012  (expect  ss.  19,  20,  21  and  32),  vide  notification  No.  S.O.  1399(E),  dated  21st  June,  2012,  see 
Gazette of India, Extraordinary, Part II, sec. 3(ii). 

2. Subs. by Act, 21 of 2021, s. 2, for the certain words (w.e.f. 23-8-2021). 

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(g) “corresponding new bank” shall have the meaning assigned to it in clause (da) of section 5 of 

the Banking Regulation Act, 1949 (10 of 1949);  

(h) “debtor” means any person liable to the assignor, whether under a contract or otherwise, to 
pay any receivable or discharge any obligation in respect of the receivable whether existing, accruing, 
future, conditional or contingent; 

(i) “factor” means a non-banking financial company as defined in clause (f) of section 45-I of the 
Reserve  Bank  of  India  Act,  1934  (2  of  1934)  which  has  been  granted  a  certificate  of  registration 
under sub-section (1) of section 3 or anybody corporate established under an Act of Parliament or any 
State Legislature or any Bank or any company registered under the Companies Act, 1956 (1 of 1956) 
engaged in the factoring business; 

(j) “factoring business” means the business of 1[acquisition by way of assignment of receivables 
of  assignor  for  a  consideration  for  the  purpose  of  collection  of  such  receivables  or  for  financing, 
whether  by  way  of  making  loans  or  advances  or  otherwise,  against  such  assignment,  but]  does  not 
include—  

(i) credit facilities provided by a bank  2[or a non-banking financial company] in its ordinary 

course of business against security of receivables; 

(ii) any activity as commission agent or otherwise for sale of agricultural produce or goods of 
any  kind  whatsoever  or  any  activity  relating  to  the  production,  storage,  supply,  distribution, 
acquisition or control of such produce or goods or provision of any services. 

Explanation.—For the purposes of this clause—  

(i) the expression  “agricultural produce” shall have the meaning assigned to it under clause 

(a) of section 2 of the Agricultural Produce (Grading and Marking) Act, 1937 (1 of 1937); and 

(ii)  the  expressions  “goods”  and  “commission  agent”  shall  have  the  meanings  assigned  to 
them respectively under clause (d) and Explanation (ii) of clause (i) of section 2 of the Forward 
Contracts (Regulation) Act, 1952 (74 of 1952); 

(k)  “financial  contract”  means  any  spot,  forward,  future,  option  or  swap  transaction  involving 
interest  rates,  commodities,  currencies, shares,  bonds,  debentures  or  any  other financial instrument, 
any repurchase of securities and lending transaction or any other similar transaction or combination of 
such transactions entered into in the financial markets; 

(l) “netting agreement” means any agreement among  the system participants for the purpose of 
determination  by  the  system  provider  of  the  amount  of  money  or  securities  due  or  payable  or 
deliverable  as  a  result  of  setting  off  or  adjusting  the  payment  obligations  or  delivery  obligations 
among the system participants, including the claims and obligations arising out of the termination by 
the system provider, on the insolvency or dissolution or winding up of any system participant or such 
circumstances as the system provider, may specify in its rules or regulations or bye-laws (by whatever 
name called), of the transactions admitted for settlement at a future date so that only a net claim be 
demanded or a net obligation be owned; 

(m) “notification” means a notification published in the Official Gazette; 

(n) “prescribed” means prescribed by rules made under this Act; 

(o) “property” means,— 

(i) the immovable property; 

(ii) the movable property; 

(iii) any debt or any right to receive payment of money, whether secured or unsecured; 

(iv) the receivables; 

       1. Subs. by Act 21 of 2021, s. 2, for certain words (w.e.f. 23-8-2021). 

               2. Ins. by s. 2, ibid (w.e.f. 23-8-2021). 

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(v)  the  intangible  assets,  being  know-how,  patent,  copyright,  design,  trade  mark,  licence, 

franchise or any other business or commercial right of similar nature; 

1[(p) “receivables” means the money owed by a debtor and not yet paid to the assignor for goods 
or services and includes payment of any sum, by whatever name called, required to be  paid for the 
toll or for the use of any infrastructure facility or services; 

(pa) “regulations” means regulations made by the Reserve Bank under this Act;] 

(q) “Reserve Bank”, means the Reserve Bank of India constituted under section 3 of the Reserve 

Bank of India Act, 1934 (2 of 1934); 

(r) “State Bank of India” means the State Bank of India constituted under section 3 of the State 

Bank of India Act, 1955 (23 of 1955);  

(s) “Subsidiary Bank” shall have the meaning assigned to it in clause (k) of section 2 of the State 

Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); 

2[(sa)  Trade  Receivables  Discounting  System”  means  a  payment  system  authorised  by  the 
Reserve Bank under section 7 of the Payment and Settlement Systems Act, 2007 (51 of 2007) for the 
purpose of facilitating financing of trade receivables;] 

(t)  words and  expressions used  and  not  defined  in this  Act  but defined  in the Reserve  Bank  of 
India  Act,  1934  (2  of  1934),  the  Banking  Regulation  Act,  1949  (10  of  1949),  the  Companies  Act, 
1956  (1  of  1956),  the  Securitisation  and  Reconstruction  of  Financial  Assets  and  Enforcement  of 
Security Interest Act, 2002 (54 of 2002), the Credit Information Companies (Regulation) Act, 2005 
(30 of 2005), or the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), shall 
have the meanings respectively assigned to them in those Acts. 

CHAPTER II 

REGISTRATION OF FACTORS 

3. Registration of factors.—(1) No factor shall commence or carry on the factoring business unless it 
obtains a certificate of registration from the Reserve Bank to commence or carry on the factoring business 
under this Act. 

(2)  Every  factor  shall  make  an  application  for  registration  to  the  Reserve  Bank  in  such  form  and 

manner as it may specify: 

3* 

* 

* 

* 

* 

 (3) Every applicant for grant of a certificate of a registration as a factor shall comply, for the purpose 
of  registration,  with  all  the  requirements  to  be  fulfilled  by  an  applicant  for  grant  of  certificate  of 
registration as non-banking financial company under the Reserve Bank of India Act, 1934 (2 of 1934) and 
all the provisions of that Act, so far as they relate to the registration of non-banking financial companies, 
shall (except those provided for under this Act) mutatis mutandis apply.  

4[(4) The Reserve Bank may grant the certificate of registration in such manner as may be specified 

by regulations.] 

(5) Save as otherwise provided in this Act, every factor including factors not subject to requirement of 
registration under section 5, shall be governed by the Reserve Bank of India Act, 1934 (2 of 1934), the 
rules and regulations made thereunder and the directions or guidelines issued by the Reserve Bank, from 
time to time. 

4.  Provisions  of  non-banking  financial  companies  apply  to  factor.—-All  provisions  of  Chapter 
IIIB  of  the  Reserve  Bank  of  India  Act,  1934  (2  of  1934)  relating  to  non-banking  financial  companies 
which have been granted a certificate of registration under sub-section (5) of section 45-IA of the Reserve 

1. Subs. by Act 21 of 2021, s. 2, for clause (p) (w.e.f. 23-8-2021). 
2. Ins. by s. 2, ibid. (w.e.f. 23-8-2021). 
3. The proviso and Explanation omitted by Act 21 of 2021, s. 3 (w.e.f. 23-8-2021). 
4. Subs. by s. 3, ibid., for sub-section (4) (w.e.f. 23-8-2021). 

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Bank  of  India  Act,  1934  shall  (except  those  specifically  provided  for  under  this  Act)  mutatis  mutandis 
apply to a factor which has been granted a certificate of registration under section 3.  

5.  Recruitment  for  registration  as  a  factor  not  to  apply  to  bank  or  Statutory  corporation  or 
Government  company.—Nothing  contained  in  section  3  shall  apply  to  a  bank  or  any  corporation 
established under an Act of Parliament or State Legislature, or a Government Company as defined under 
section 617 of the Companies Act, 1956 (1 of 1956).  

6. Powers of Reserve Bank to give directions and to collect information from factors.—(1) The 
Reserve Bank may, at any time by general or special order, direct that every factor shall furnish to it, in 
such form, at such intervals and within such time, such statements, information or particulars relating to 
factoring business undertaken by the factor, as may be specified by the Reserve Bank from time to time.  

(2) The  Reserve  Bank  may,  if it considers  necessary  in the  interest of business  enterprises  availing 
factoring  services  or  in  the  interest  of  factors  or  interest  of  other  stake  holders  give  directions  to  the 
factors either generally or to any factor in particular or group of factors in respect of any matters relating 
to or connected with the factoring business undertaken by such factors. 

(3) If any factor fails to comply with any direction given by the Reserve Bank under sub-section (2), 

the Reserve Bank may prohibit such factor from undertaking the factoring business:  

Provided that before prohibiting any factor from undertaking the factoring business, the factor shall 

be given a reasonable opportunity of being heard.  

CHAPTER III 

ASSIGNMENT OF RECEIVABLES 

7.  Assignment  of  receivables.—(1)  Any  assignor  may,  by  an  agreement  in  writing,  assign  any 
receivable due and payable to him by any debtor, to any factor, being the assignee, for a consideration as 
may  be  agreed  between  the  assignor  and  the  assignee  and  the  assignor  shall  at  the  time  of  such 
assignment, disclose to the assignee any defences and right of set off that may be available to the debtor: 

Provided  that  if  the  debtor  liable  to  pay  the  receivable  or  the  business  of  factor  is  situated  or 
established outside India, any assignment of receivable shall be subject to the provisions of the Foreign 
Exchange Management Act, 1999 (42 of 1999).  

(2) On execution of agreement in writing for assignment of receivables, all the rights, remedies and 
any security interest created over any property exclusively to secure the due payment of receivable shall 
vest in the assignee and the assignee shall have an absolute right to recover such receivable and exercise 
all the rights and remedies of the assignor whether by way of damages or otherwise, or whether notice of 
assignment as provided in section 8 is given or not. 

(3) Any assignment of receivables which constitute security for repayment of any loan advanced by 
any Bank or other creditor and if the assignor has given notice of such encumbrance to the assignee, then 
on accepting assignment of such receivable, the assignee shall pay the consideration for such assignment 
to the Bank or the creditor, as the case may be. 

8.  Notice  to  debtor  and  discharge  of  obligation  of  such  debtor.—Any  assignee  of  a  receivable 
shall not be entitled to demand payment of the receivable from the debtor in respect of such receivables 
unless notice of such assignment is given to the debtor by the assignor or the assignee along with express 
authority in its favors granted by the assignor. 

9.  Discharge  of  liability  of  debtor  on  payment  to  assignee.—Where  a  notice  of  assignment  of 
receivable  is  given  by  the  assignor  or  the  assignee,  as  the  case  may  be,  under  section  8  the  debtor  on 
receipt  of  such  notice,  shall  make  payment  to  the  assignee  and  payment  made  to  such  assignee  in 
discharge of any obligation in relation to the receivables specified in the notice shall fully discharge the 
debtor making the payment, from corresponding liability in respect of such payment. 

10.  Payment  made  by  debtor  to  assignor  to  be  held  in  trust  for  benefit  of  assignee  in  certain 
cases.—Where no notice of assignment of receivables is given by the assignor or under his authority by 
the assignee, any payment made by the debtor in respect of such receivables to the assignor shall be held 

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in trust for the benefit of the assignee which shall be forthwith be paid over to such assignee, as the case 
may be, or its agent duly authorised in this behalf. 

CHAPTER IV 

RIGHTS AND OBLIGATIONS OF PARTIES TO CONTRACT FOR ASSIGNMENT OF RECEIVABLES 

11.  Rights  and  obligations  of  parties  to  contract  for  assignment  of  receivables.—Without 
prejudice to the provisions contained in any other law for the time being in force, the debtor shall have the 
right to notice of assignment under section 8 before any demand is made on it by the assignee and until 
notice is served on the debtor, the debtor shall be entitled to make payments to the assignor in respect of 
assigned receivables in accordance with the original contract and such payment shall fully discharge the 
debtor from corresponding liability under the original contract. 

Explanation.—For the removal of doubts, it is hereby clarified that nothing contained in this section 

shall affect the rights of debtor to make payment to the assignee under section 9. 

12.  Liability  of  debtor.—Where  a  notice  of  assignment  as  referred  to  in  section  8  is  served,  the 

debtor shall, — 

 (a) intimate the assignee the details of the deposits or advance or payment on account made to 
the assignor before the receipt of notice of assignment and also provide any other information to the 
assignee relating to the receivable as and when called upon by the assignee to do so; 

(b) not be entitled to a valid discharge of his liability in respect of assigned receivables, unless he 

makes the payment due on an assigned receivables to the assignee. 

13. Assignor to be trustee of assignee.—Notwithstanding anything to the contrary contained in any 
other law for the time being in force, where a debtor makes any payment to an assignor which represents 
payment  due  on  an  assigned  receivable,  such  payment  shall  be  deemed  to  be  for  the  benefit  of  the 
assignee, and the assignor shall be deemed to have received the amount of such payment as a trustee of 
the assignee and the assignor shall make payment of such amount to the assignee. 

14.  Liability  of  debtor  in  case  of  an  assignor  being  micro  or  small  enterprises.—(1)  If  the 
assignor of receivables is a micro or small enterprise, the liability of the debtor to make payment due on 
assigned receivables shall be subject to the provisions contained in sections 15 to 17 of the Micro, Small 
and Medium Enterprises Development Act, 2006 (27 of 2006) with regards to the delayed payments of 
the receivables.  

(2) In the event of delay in payment on the part of the debtor to pay the receivable of any micro or 
small  enterprise,  the  assignee  shall  be  entitled  to  receive  interest  for  the  delayed  period  and  shall  take 
steps  under  the  provisions  of  the  Micro,  Small  and  Medium  Enterprises  Development  Act,  2006                  
(27  of  2006) for the  purpose  of the  recovery  of  the  interest  and  shall  pay  such interest to  the  micro  or 
small enterprise. 

15. Principle of debtor protection.—(1) Save as otherwise provided in this Act, any assignment of 
the  receivable  shall  not,  without  the  express  consent  of  the  debtor  in  writing,  affect  the  rights  and 
obligations of the debtor (including the terms and conditions of the contract). 

(2)  Consequent  upon  the  assignment  of  receivables,  the  payment  instruction  under  the  contract 
entered into between assignor and debtor may modify the name of person, address or account to which the 
debtor is required to make payment, but such instructions shall not modify:— 

(a) the amount of debt specified in the original contract; or 

(b) the place specified in the original contract at which payment is to be made or in case no such 
place  is  mentioned  in  the  contract,  the  place  of  payment  to  a  place  other  than  where  the  debtor  is 
situated; or 

(c) the  date  on  which  payment  is  to  be  made  or  other  terms  of  the  original  contract relating  to 

payment. 

16.  Defences  and  right  of  set  off  of  debtor.—  In  a  claim  by  the  assignee  against  the  debtor  for 

payment of the assigned receivable, the debtor may raise against the assignee,— 

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 (a) all defences and right of set off arising from the original contract, entered into between the 
assignor and debtor or any other contract that was part of the same transaction, of which the debtor 
could avail himself as if the assignment had not been made and such claim were made by the assignor 
instead of assignee: 

Provided  that  the  assignee  shall,  unless  otherwise  agreed  between  the  parties,  be  entitled  to 
recover from the assignor, any loss suffered by it as a result of any such defences and right of set off 
being exercised by the debtor; 

(b) any other right of set off if it was available to the debtor at the time notice, under section 8, of 

the assignment was received by the debtor. 

17.  Modification  of  original  contract.—(1)  Any  agreement  made  before  service  of  notice,  under 
section 8, of the assignment of a receivable between the assignor and the debtor that affects the assignee's 
rights in respect of that receivable shall be effective as against the assignee, and the assignee shall acquire 
rights in the assigned receivables, as modified by such agreement. 

(2)  Any  agreement  made,  after  notice  of  the  assignment  between  the  assignor  and  the  debtor  that 

affects the assignee's rights, shall be ineffective as against the assignee unless,— 

(a) the assignee consents to it; or 

(b) the receivable is not fully earned by performance and either the modification is provided for in 
the original contract or, in the context of the original contract, a reasonable assignee would consent to 
the modification. 

(3) Nothing contained in sub-sections (1) and (2) shall affect any right of the assignor or the assignee 

arising from breach of an agreement between them. 

18. Breach of contract.—If the assignor commits any breach of the original contract with the debtor, 
such breach shall not entitle the debtor to recover from the assignee any sum paid by the debtor to the 
assignor or the assignee pursuant to the factoring transactions: 

Provided that nothing contained in this section shall affect the rights of the debtor to claim from the 

assignor any loss or damages caused to him by reason of breach of the original contract. 

CHAPTER V 

REGISTRATION OF ASSIGNMENTS 

19.  Registration  of  certain  assignments  of  receivables  transactions.—1[(1)Every  factor  shall 
register  the  particulars  of  every  transaction  of  assignment  of  receivables  in  his  favour  with  the  Central 
Registry  set-up  under  section  20  of  the  Securitisation  and  Reconstruction  of  Financial  Assets  and 
Enforcement  of  Security  Interest  Act,  2002  (54  of  2002),  within  such  time  from  the  date  of  such 
assignment, in such manner and subject to payment of such fee, as may be prescribed.] 

Explanation.—For  the  purpose  of  filing  of  particulars  of  every  transaction  of  assignment  of 
receivables  with  the  Central  Registry,  the  receivables  may  be  described  specifically  or  generally  with 
reference to the debtor, or the period to which they relate or by any other general description by which 
such receivables can be identified. 

2[(1A)  Where  any  trade  receivables  are  financed  through  a  Trade  Receivables  Discounting  System, 
the particulars specified in sub-section (1) and sub-section (3) shall be filed with the Central Registry on 
behalf of the factor by the Trade Receivables Discounting System concerned, in such manner as may be 
specified by regulations.] 

(2) For the purposes of this Act, a record called the Central Register shall be kept at the head office of 
the Central Registry for entering the particulars of the transactions relating to assignment of receivables in 
favour of a factor. 

1. Subs. by Act 21 of 2021, s. 4, for sub-section (1) (w.e.f. 23-8-2021). 
2. Ins. by s. 4, ibid. (w.e.f. 23-8-2021). 

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(3) On realisation of the assigned receivables or settlement of the claim against the debtors, the factor 
shall  file  satisfaction  of  the  assignment  of  receivables  in  its  favour,  in  such  manner  and  subject  to 
payment of such fees as may be prescribed in this behalf.  

(4) The provisions for registration of transactions contained in the Securitisation and Reconstruction 
of  Financial  Assets  and  Enforcement  of  Security  Interest  Act,  2002  (54  of  2002)  and  the  rules  made 
thereunder shall, mutatis mutandis, apply to the record of assignment of receivables in favour of a factor 
in the Central Register with the Central Registry. 

20.  Public  inspection.—(1)  The  particulars  of  transactions  of  assignment  of  receivables  entered  in 
the  Central  Register  of  such  transactions  under  section  19  shall  be  open  during  business  hours  for 
inspection by any person on payment of such fee as may be prescribed. 

(2) The  Central  Register  referred  to  in  sub-section (2)  of  section  19  maintained  in  electronic  form, 
shall also be open during the business hours or such extended hours as may be specified by the Central 
Registry  for  inspection  by  any  person  through  electronic  media  on  payment  of  such  fee  as  may  be 
prescribed. 

(3) The provisions for maintenance of Central Register and public inspection thereof contained in the 

Securitisation  and  Reconstruction  of  Financial  Assets  and  Enforcement  of  Security  Interest  Act,  2002              
(54 of 2002) and the rules made thereunder shall, mutatis mutandis, apply. 

CHAPTER VI 

OFFENCES AND PENALTIES 

21.  Penalties.—If  a  default  is  made  in  filing  under  section  19  the  particulars  of  any  transaction  of 
assignment of receivables and realisation of receivables by a factor, such company and every officer of 
the company who is in default shall be punishable with fine which may extend to five thousand rupees for 
every day during which the default continues. 

22. Penalties for non-compliance of direction of Reserve Bank.—(1) If any factor fails to comply 
with any direction issued by the Reserve Bank under section 6, the Reserve Bank may impose a penalty 
which  may  extend  to  five  lakh  rupees  and  in  the  case  of  a  continuing  offence,  with  an  additional  fine 
which may extend to ten thousand rupees for every day during which the default continues. 

(2)  For  the  purpose  of  adjudging  the  penalty  under  sub-section  (1),  the  Reserve  Bank  shall  serve 
notice  on  the  factor  requiring  it  to  show  cause  why  the  amount  specified  in  the  notice  should  not  be 
imposed and a reasonable opportunity of being heard shall also be given to such factor. 

(3) Any penalty imposed by the Reserve Bank under this section shall be payable within a period of 
fourteen days from the date on which notice issued by the Reserve Bank demanding payment of the sum 
is served on the factor and in the event of failure of the factor to pay the sum within such period, may be 
levied on a direction made by the principal civil court having jurisdiction in the area where the registered 
office of the factor is situated; or, in the case of a factor incorporated outside India, where its principal 
place of business in India is situated: 

Provided  that  no  such  direction  shall  be  made  except  on  an  application  made  to  the  court  by  the 

Reserve Bank or any officer authorised by Reserve Bank in this behalf. 

(4) The court  which  makes  a  direction  under  sub-section (3) shall  issue  a  certificate  specifying  the 
sum payable by the factor and every such certificate shall be enforceable in the same manner as if it were 
a decree made by the court in a civil suit. 

23. Offences.—If any person contravenes or attempts to contravene or abets the contravention of the 
provisions of this Act or of any rules made thereunder, for which no specific penalty has been provided 
for, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or 
with both. 

24. Cognizance of offences.—(1) No Court shall take cognizance of any offence punishable under 
this  Act  except  upon  a  complaint  in  writing  made  by  an  officer  of  the  Reserve  Bank,  generally  or 
specially authorised in writing in this behalf by the Reserve Bank. 

9 

 
(2) No Court other than that of a Metropolitan Magistrate or a Judicial Magistrate of the first class or 

a court superior thereto shall try any such offence punishable under this Act. 

25. Offences by factors.—(1) Where an offence under this Act has been committed by a factor, every 
person who at the time the offence was committed was in charge of, and was responsible to, the factor, for 
the conduct of the business of the factor, as well as the factor, shall be deemed to be guilty of the offence 
and shall be liable to be proceeded against and punished accordingly: 

Provided  that  nothing  contained  in  this  sub-section  shall  render  any  such  person  liable  to  any 
punishment provided in this Act, if he proves that the offence was committed without his knowledge or 
that he has exercised all due diligence to prevent the commission of such offence. 

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been 
committed  by  a  factor  and  it  is  proved  that  the  offence  has  been  committed  with  the  consent  or 
connivance of, or is attributable to, any neglect on the part of any director, manager, secretary or other 
officer of the factor, such director, manager, secretary or other officer shall also be deemed to be guilty of 
the offence and shall be liable to be proceeded against and punished accordingly.  

Explanation.—For the purpose of this section, a “director”, in relation to a factor means any officer 

entrusted with the management of the whole or substantially the affairs of the factor. 

CHAPTER VII 

MISCELLANEOUS 

26.  Provisions  of  this  Act  to  override  other  laws.—The  provisions  of  this  Act  shall  have  effect, 
notwithstanding anything inconsistent therewith contained in any other law for the time being in force or 
any instrument having effect by virtue of any such law. 

27. Application of other laws not barred.—The provisions of this Act or the rules made thereunder 
shall be in addition to and not in derogation of the Negotiable Instruments Act, 1881 (26 of 1881), the 
Transfer of Property Act, 1882 (4 of 1882), the Reserve Bank of India Act, 1934 (2 of 1934), the Banking 
Regulation  Act,  1949  (10  of  1949),  the  Companies  Act,  1956  (1  of  1956),  the  Securitisation  and 
Reconstruction  of  Financial  Assets  and  Enforcement  of  Security  Interest  Act,  2002  (54  of  2002),  the 
Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) or any other law for the time 
being in force. 

28. Limitation.—No assignee of any receivable shall be entitled to take any measures for recovery of 
any  assigned  receivable,  through  any  court  or  Tribunal  unless  his  claim  in  respect  of  the  receivable  is 
made within the period of limitation specified under the Limitation Act, 1963 (36 of 1963). 

29. Confidentiality of information.—Save as otherwise provided in this Act, or unless required to 
do so by an order passed by any Court or Tribunal or any other statutory authority under any provision of 
law for the time being in force or for the purpose of recovery of the receivable, a factor shall maintain 
confidentiality  and  shall  not  disclose  to  any  person  information  obtained  by  it  from,  any  assignor,  its 
present  and  future  customers,  its  commercial  and  business  activities  and  the  terms  of  sale  between  the 
assignor and any debtor and other detail about the assignor. 

30. Power to exempt.—(1) The Central Government may, by notification in the public interest, direct 

that any of the provisions of this Act, 

(a) shall not apply to such class or classes of banks or a company or a factor; or 

(b) shall apply to the such class or classes of banks or a company or a factor with such exceptions, 

modifications and adaptations as may be specified in the notification. 

(2)  A  copy  of  every  notification  issued  under  sub-section  (1),  shall  be  laid  before  each  House  of 
Parliament, while it is in session, for a total period of thirty days which may be comprised in one session 
or in two or more successive sessions, and if, before the expiry of the session immediately following the 
session  or  the  successive  sessions  aforesaid,  both  Houses  agree  in  making  any  modification  in  the 
notification or both the Houses agree that the notification shall not be issued or, the notification shall have 
effect  only  in  such  modified  form  or  be  of  no  effect,  as  the  case  may  be;  so,  however,  that  any  such 

10 

 
modification or annulment shall be without prejudice to the validity of anything previously done under 
the notification. 

31. Provisions of this Act not to apply or affect in certain cases.—(1) The provisions of this Act 
shall  not  apply  to  any  assignment  of  receivables  arising  under  or  from  the  following  transactions, 
namely:— 

 (a)  any  merger,  acquisition  or  amalgamation  of  business  activities  or  sale  or  change  in  the 

ownership or legal status of the business; 

(b) transactions on any stock exchange or commodities exchange regulated by the Securities and 
Exchange Board of India constituted under the provisions of the Securities and Exchange Board of 
India  Act,  1992(15  of  1992)  or  by  the  Forward  Markets  Commission  under  the  Forward  Contracts 
(Regulation) Act, 1952 (74 of 1952), respectively;  

(c)  financial  contracts  governed  by  netting  agreements,  except  a  receivable  owed  on  the 

termination of all outstanding transactions; 

(d) foreign exchange transactions except receivables in any foreign currency; 

(e)  inter-bank  payment  systems,  inter-bank  payment  agreements  or  clearance  and  settlement 

systems relating to securities or other financial assets or instruments; 

(f) bank deposits; 

(g) a letter of credit or independent guarantee; 

(h)  rights  and  obligations  of  any  person  under  the  law  governing  negotiable  instruments, 

negotiable  warehouse  receipts  under  the  Warehousing  (Development  and  Regulation)  Act,  2007                
(37  of  2007)  or  to  instruments  which  are  for  the  time  being,  by  law  or  custom  negotiable  or  any 
mercantile document of title to goods; 

(i) sale of goods or services for any personal, family or household use; 

(j)  any  assignment  of  loan  receivables  by  a  bank  or  non-banking  financial  company  to  another 

bank or non-banking financial company; 

(k) securitisation transactions (including assignment of receivables to special purpose vehicles or 
trusts  that  issue  securities  against  such  receivables,  bought  from  a  single  debtor  or  single  group  of 
debtors). 

(2) Nothing contained in this Act shall affect the rights and obligations of a consumer, manufacturer, 

trader or service provider under the provisions of the Consumer Protection Act, 1986 (68 of 1986). 

1[31A. Power to make regulations.—(1)The Reserve Bank  may, by notification,  make regulations 

consistent with this Act to carry out the provisions of this Act. 

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may 

provide for all or any of the following matters, namely:- 

(a) the manner of granting certificate of registration under sub-section (4) of section 3; 

(b)  the  manner  of  filling  of  particulars  of  transactions  with  the  Central  Registry  on  behalf  of 

factors under sub-section (1A) of section 19; 

(c) any other matter which is required to be, or may be, specified by regulations. 

(3) Every regulation shall, as soon as may be after it is made by the Reserve Bank, be forwarded to 
the  Central  Government  and  that  Central  Government  shall  cause  a copy  of  the  same  to  be laid  before 
each House of Parliament, while it is in session, for a total period of thirty days which may be comprised 
in one session or in two or more successive sessions, and if, before the expiry of the session immediately 
following the session or the successive sessions aforesaid, both Houses agree in making any modification 
in  the  regulation,  or  both  Houses  agree  that  the  regulation  should  not  be  made,  the  regulation  shall, 
thereafter, have effect only in such modified form or be of no effect, as the case may be; so, however, that 

1. Ins. by Act 21 of 2021, s. 5 (w.e.f. 23-8-2021). 

11 

 
                                                           
any such modification or annulment shall be without prejudice to the validity of anything previously done 
under that regulation.] 

32.  Power  of  Central  Government  to  make  rules.—(1)  The  Central  Government  may,  in 
consultation with the Reserve Bank, by notification and in the Electronic Gazette as defined in clause (5) 
of  sub-section  (1)  of  section  2  of  the  Information  Technology  Act,  2000  (21  of  2000)  make  rules  for 
carrying out the provisions of this Act. 

(2)  In  particular  and  without  prejudice  to  the  generality  of  the  foregoing  power  such  rules  may 

provide for all or any of the following matters, namely:— 

 (a)  1[the  time  within  which,  the  form  and  manner]  in  which  the  transactions  of  assignment  of 
receivables in favour of a factor shall be filed and the fee for filing such transaction under sub-section 
(1) of section 19; 

(b) the form and manner in which the satisfaction of assignment of receivable or settlement of the 

claim shall be registered and the fee for filing such transactions under sub-section (3) of section 19; 

(c) fee for inspecting the Central Register under section 20; and 

(d) any other matter which is required to be or may be prescribed, in respect of which provision is 

to be made or may be made by rules. 

33.  Laying  of  rules.—Every  rule  made  under  this  Act  shall  be  laid,  as  soon  as  may  be  after  it  is 
made, before each House of Parliament, while it is in session, for a total period of thirty days which may 
be comprised in one session or in two or more successive sessions, and if, before the expiry of the session 
immediately following the session or the successive sessions aforesaid, both Houses agree in making any 
modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter 
have effect only in such modified form or be of no effect, as the case may be; so, however, that any such 
modification or annulment shall be without prejudice to the validity of anything previously done under 
that rule. 

34. Power to remove difficulties.—-(1) If any difficulty arises in giving effect to the provisions of 
this Act, the Central Government may, by order published in Official Gazette, make such provisions not 
inconsistent with the provisions of this Act, as may appear to be necessary for removing the difficulty: 

Provided that no order shall be made under this section after the expiry of a period of two years from 

the commencement of this Act.  

(2) Every order made under this section shall be laid, as soon as may be, after it is made, before each 

House of Parliament. 

35.  Amendments  to  certain  enactments.—The  enactments  specified  in  the  Schedule  shall  be 

amended in the manner specified therein. 

1. Subs. by Act 21 of 2021, s. 6, for “the form and manner” (w.e.f. 23-8-2021). 

12 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Year 

1899 

1908 

1934 

THE SCHEDULE 

(See section 35) 

Act No. 

Short Title 

Amendment 

2 

The  Indian  Stamp  Act, 
1899 

After  section  8C,the  following  section  
shall be inserted, namely:—  

‘8D.  Agreement  or  document 

for 
assignment  of  receivables  not  liable  to 
stamp duty.— 

Notwithstanding  anything  contained  in 
this Act or any other law for the time being 
in force, any agreement or other document 
for assignment  of  “receivables”  as defined 
in  clause  (p)  of  section  2  of  the  Factoring 
Regulation  Act,  2011  in  favour  of  any 
“factor” as defined in clause (i) of section 2 
of  the  said  Act  shall  not  be  liable  to  duty 
under this Act or any other law for the time 
being in force.’. 

In  Order  XXXVII,  in  rule  1,  in  sub-rule 
(2), in clause (b), after sub-clause (iii), the 
following  sub-clause  shall  be  inserted, 
namely:— 

“(iv)  suit  for  recovery  of  receivables 
instituted by any assignee of a receivable.”. 

In clause (d) of sub-section (1) of section 8, 
for  the  words  “one  Government  officials” 
the words “two Government officials” shall 
be substituted. 

5 

2 

The  Code  of  Civil 
Procedure, 1908 

The  Reserve  Bank  of 
India Act, 1934 

2005 

30 

The  Credit  Information 
Companies  (Regulation) 
Act, 2005 

In  section  2,  in  clause  (f),  after  sub-clause 
(ii),  the  following  sub-clause  shall  be 
inserted, namely:—  

“(iia) a factor as defined under clause (i) 
of  section  2  of  the  Factoring  Regulation 
Act, 2011.”. 

13 

 
 
 
 
 
 
